pmacduff Posted December 1, 2003 Posted December 1, 2003 Ok - Client has a 401(k) plan with deferral, match and non-elective contributions. Match formula is 100% up to 5% deferred. Client makes a 12.5% employer contribution every year per the plan document. Client wants to take 3% of the 12.5% and make it a safe harbor non-elective to pass the discrimination tests. Question is on the does the 3% SHNEC eliminate all discrimination tests, i.e. am I satisfying both ADP & ACP? If so, is it ok to keep the 100% up to 5% match (which is on a vesting schedule)?
R. Butler Posted December 1, 2003 Posted December 1, 2003 You need to reduce the match formula to 100% on the first 4%. Notice 98-52 syas ACP safe harbor not met if employer discretionary match exceeds 4% of comp.
pmacduff Posted December 1, 2003 Author Posted December 1, 2003 Thanks R. Butler - it seems crazy that the employer can't have the free pass on boths tests being MORE generous! This client passes with standard ACP testing, so I guess we just use the 3% SHNEC for the ADP and continue to test the ACP, right?
Archimage Posted December 1, 2003 Posted December 1, 2003 If the match is hardcoded in the document then you are okay as long as it does not match above 6% of compensation.
R. Butler Posted December 1, 2003 Posted December 1, 2003 After re-reading Notice 98-52 I am inclined to agree with Archimage. As long as the match isn't discretionary your probably OK with 100% on the first 5%. If it is discretionary you are stuck with the 4% limit.
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